Selling a Vacation Home? 7 Tips About Capital Gains Taxes & Getting Ready to Sell

Tips for Selling Your Vacation HomeSelling a vacation home in Canada is more than just a transaction; it's a strategic decision that requires careful consideration, especially when it comes to tax implications. Understanding the nuances of the market and the legal landscape is crucial for homeowners looking to navigate this process effectively. Keep reading to learn about the essential strategies and tax considerations to increase the odds of a smooth sale of your vacation property.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

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Primary Residence vs. Vacation Property Taxes

Navigating taxes during a first-time home sale can feel like a bit of a minefield, to say nothing of selling a second/vacation home. But thankfully, homeowners do have some options when it comes to asking how to sell a home and navigating their vacation home taxes. This includes understanding GST implications, capital gains tax, and other provincial tax requirements. 

Homeowners should consult with legal and tax professionals to ensure compliance and explore strategies for tax minimization. This could involve considerations such as changing the use of the property or timing the sale to align with favourable tax conditions.

Capital Gains

A capital gain is the difference between what an asset was purchased for and what it was sold for. For instance, if a vacation home bought for $400,000 is sold for $850,000, the $450,000 gain is subject to capital gains tax. In the case of a normal home sale, capital gains are usually deducted. However, with a second home, half the appreciation is added on to the homeowner's yearly income and then taxed according to the resulting bracket.

Homeowners can reduce their tax burden through various deductions, such as capital losses, major renovations, and closing costs. Understanding these nuances is vital for homeowners to make informed decisions and minimize their tax liabilities.

There are a few ways to lighten the burden of capital gains:

  • Closing costs: Sellers are allowed to deduct the closing costs from their appreciation. From real estate agent fees to inspector charges to attorney costs, these fees can be lumped together.
  • Advertising costs: Any fees the seller spends to market the home (e.g., professional photos, videos, etc.) can also be deducted from the sale price of the home.
  • Home renovations: Major home renovations can be added to the purchase price of the home, thus lessening the total appreciation. However, not all home repairs count toward this benefit. Sellers may need to check with city officials to find out if their work qualifies.

Sellers are also allowed to donate their capital gains for a substantial tax credit, but it usually takes a financial planner to advise a homeowner if this option is worth it. Sellers who need an extension to pay their capital gains can file through the Canadian Revenue Agency. This is highly recommended if the escrow period runs longer than expected.


It can be tempting to claim high values of depreciation for those who claim rental income. The more depreciation, the less rental income a person has to declare. However, there's a risk in this strategy if the property value has steadily climbed. Those who claim a high level of depreciation will start with that number when calculating their capital gains on a vacation home or primary residence. So if the property was originally purchased at $500,000, depreciated by $100,000 and then sold at $1 million, the capital gains will be taxed at $600,000 instead of $500,000.


If the vacation home has gone up in value, a homeowner would be smart to concentrate on their deductions rather than their depreciation. What can be deducted can be tricky, so it helps to talk to a real estate agent. For example, major home renovations can be deducted, but “major” is a vague enough term that sellers should consult with someone who understands the specifics. They can also usually deduct the closing costs from the original purchase of the property in addition to the real estate-related costs of the home sale.

Property Use Changes

The way a property has been used over time can significantly affect its tax implications. For example, a property initially purchased as a vacation home but later used as a principal residence might have different tax liabilities compared to a property that has always been a vacation home. It's important for sellers to accurately track and document the use of their property over time to ensure correct tax reporting and to take advantage of any potential tax benefits.

Investors will sometimes make their vacation home their primary residence if their vacation home has risen in value while their primary residence has declined. In this case, homeowners can sell the primary and deduct their capital losses from their capital gains to avoid taxes as long as they follow the correct reporting procedures.

Tips for Selling a Vacation Home

Just like when you’re selling your primary residence, there are several ways to give your vacation home a better chance of selling. From staging the home to choosing the right time to sell and working with an expert, these strategies are a great place to start.

Preparing Your Vacation Home for Sale

Effective preparation of your vacation home can significantly enhance its market appeal. This involves conducting minor repairs, ensuring the property is clean, and considering staging to showcase its potential. Some other ideas include:

  • Refreshing the paint
  • Repairing any damages
  • Decluttering living spaces
  • Updating furniture and fixtures

Work With a Real Estate Agent

Selecting the right real estate agent is crucial in the sale of a vacation home. An agent with specific experience in vacation properties can provide valuable insights into market trends and buyer preferences. Look for agents with a proven track record in the vacation home market, strong local market knowledge, and a comprehensive marketing strategy.

Find the Best Time to Sell

The timing of your sale can greatly impact the success of the transaction; seasonal trends play a crucial role.All home selling is cyclical—there are certain months when people want to buy and others that are not as popular. However, second homes can follow this rule more so than standard home sales. 

For instance, ski chalets are best sold in winter, when their appeal is at its peak, while lakeside properties are more attractive during the spring and summer months. Understanding these seasonal dynamics is key to attracting the right buyers and securing the best possible price for your vacation home.

And even if there's more competition during the popular months, sellers can still use the sheer number of buyers to their advantage. If they stage the home correctly, they may even inspire a bidding war that pushes the home sale price in the right direction.

Is it Time to Sell Your Vacation Home?

Selling a second home in Canada requires a strategic approach, particularly with respect to understanding and managing tax implications. Armed with that knowledge and after preparing their home for potential buyers, homeowners can navigate the complexities of the market. Knowing the difference between selling a second home and a primary residence is essential for a successful and profitable sale of a vacation home.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

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